What to Know Before My Big Coinbase Options Trade

If you've been with me for a while, you'll know that if a stock's looking good, and I see the right upside in it, we'll trade it. There's almost always profits to be had.

But one stock we haven't been able to trade yet is Coinbase Global Holdings Inc. (NASDAQ: COIN). Coinbase had a huge direct listing that briefly hit $100 billion and served as cryptocurrency's unofficial "debut" on Wall Street.

It's also been fairly volatile, rising as high as $429 and going as low as $282. Coinbase is a big, liquid stock that's practically crying out for a trade - my inbox and comments section have been blowing up with questions on trading it. I'll get to those in a minute.

But what a lot of folks don't realize is that COIN shares were impossible to trade for most of the first calendar week they were listed. A few basic criteria need to be met over the first five days of trading before an options market can be created.

Well, those criteria have been met - and exceeded, to be sure - so we're seeing options trades happen right now.

In fact, I'm already getting what I think will be an extremely profitable one ready for my Total Wealth readers; you'll get the chance to get in on it shortly.

But first, I want to share some of my thinking - and the answers to some of the excellent "Mailbag" questions I've received since the Coinbase direct listing...

Reader Q&A: Your Coinbase Questions Answered

Note: I've edited, condensed, and combined these questions for clarity and length. -S.G.

Q: Crypto's had a killer year - Bitcoin's up over 700% since this time last April... Ethereum's up 1,300%... and hundreds of other coins by nearly as much. It's been a frenzy. And now, the biggest crypto exchange, Coinbase, recently listed on the Nasdaq and quickly became the largest U.S. exchange by market cap. Investors have been falling all over themselves about how big a deal this is... but is it really? Will cryptocurrencies go higher? Should investors think about investing in the stock? What does the Coinbase listing really mean?

A: It means a lot. And it adds a lot to the whole conversation, to the whole world of cryptocurrencies. For one thing, Coinbase's listing, to me, is a de facto legitimization of cryptocurrencies. In terms of the whole conversation surrounding cryptos, you have passionate people on both sides, the believers and the naysayers. The non-believers mostly argue cryptos will eventually get squashed by governments who won't ultimately abide by a competing currency with degrees of anonymity.

I get that argument. But here comes Coinbase.

Here's a question of my own: If the U.S. government, or the all-powerful Federal Reserve System - which, by the way owns America's currency - was planning on someday killing cryptos, why would they stand by and let the U.S. Securities and Exchange Commission (SEC) allow it to be listed? If they had it in for cryptos, why would they permit a publicly traded cryptocurrency exchange that not only will draw in hundreds of thousands or more investors, but also facilitates the buying and selling of cryptocurrencies? That listing wouldn't happen if cryptocurrencies were going to be outlawed or regulated into some black hole. That's what I mean when I say Coinbase's direct listing is helping to legitimize cryptos.

It's a big deal. And the big, institutional adopters of Bitcoin and other cryptos can and will transact there because it's presumably safer to transact on an SEC-regulated national exchange, which is what Coinbase is, than on private exchanges or platforms.

Q: What do you think is the best way to make money on this? Should people buy cryptos or go the "safe" route and buy Coinbase stock?

A: I'll answer that this way. Of course, I get blockchain, and I understand what Bitcoin's supposed to be, and I understand and get smart-contract cryptos. That said, I don't believe at this time cryptos are a store of value or a good transaction medium. They may be someday, but, in my opinion, not yet.

Right now, I classify them as great trading instruments. Why are they great? Because they have inherent volatility, and as a trader, I thrive on volatility. But that volatility is also what greatly diminishes their appeal as a store of value or as a fungible transaction instrument. And because of that volatility, I wouldn't be an investor in any of them.

A trader of them, yes, for sure. And since Coinbase's business is predicated on transactions in cryptos, which ebbs and flows with rising prices and declining prices, or stagnates over crypto "winters" or long dead periods where cryptos have traded sideways for months and quarters, sometimes years at a time, Coinbase, too, will naturally exhibit volatility and will be hard to value.

As exciting as it is to have a listed crypto exchange, there are other crypto trading platforms, including Kraken, Binance, and the Winklevoss's Gemini platform. The way I see it, Coinbase has no moat; competitors can attack its position, and indeed they already are.

This Could Be a Very Profitable Trade

So, there you have it. In a nutshell, that's why I'm so excited to trade Coinbase, to turn its ups and downs, which have been on full display this past week, into profits. COIN options are a great way to control your risk, too.

Now, with that said, trading options on the first few days of a stock's listing can be tricky. The volume can be deceiving, and for retail investors, it's almost like gambling.

A slight move can shoot the moon... or blow up.

But I've been in the markets for 38 years. After a week of watching options activity and how this stock trades, I have a pretty good idea how to play it.

Tomorrow, April 27, I'm going to send out detailed instructions on this first-ever COIN trade to subscribers of my free Total Wealth e-letter. If you already get Total Wealth, just sit tight - it'll hit your inbox around noon, and there'll be more than enough time to put the order through on your platform of choice before the close.

If you aren't a subscriber, well, it's easy: Just click here* to start your subscription. There's no charge for Total Wealth, and there never will be. You'll hear from me every week about what I think are the markets' best opportunities - including COIN. I'll send that over as soon as it's ready. *Clicking the link will opt you on to Total Wealth free e-letter. Privacy Policy

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Shah Gilani

About the Author

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Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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